Morning Report: Don’t fear another real estate bubble 6/1/16

Markets are lower this morning on overseas weakness. Bonds and MBS are up.

Mortgage Applications fell 4.1% last week as purchases fell 4.7% and refis fell 3.9%. Refis ticked up to 54.3% of the total number of loans.

The ISM Manufacturing report came in better than expected, indicating that the manufacturing economy is expanding, albeit modestly. The ISM services number is much more important, as manufacturing only represents 15% of the economy. It looks like the exporters are getting hit harder than those who mainly focus domestically. Employment was flat month-over-month, however it is in a contracting trend.

Construction spending fell 1.8% month-over month, however the previous 0.3% print was revised upward to 1.5%. Residential construction fell 1.5% month-over-month, however it is up 8% YOY.

As we saw from the FHFA House Price index, home prices have recouped their losses from the bubble years. Is it time to start worrying about a new housing bubble? Freddie Mac takes a look at real estate prices relative to incomes, credit scores, inventory, and leverage in the system and concludes that it is not yet time to worry. While house prices are indeed stretched relative to incomes, that figure ignores the effect of interest rates. The overall credit profile for new originations has been strong since the crisis, and while we are beginning to see some credit deterioration in the oil states, it is nothing like 2007-2008. Tight inventory remains a huge issue in terms of pricing, and notwithstanding last week’s 617k print on new home sales, new construction is still well below historical levels. Consumers are increasing mortgage debt, however they seem to be using the cash-out refi to pay down credit card debt instead off funding consumption. The froth in the housing market still remains concentrated in the big coastal urban areas like San Francisco and Manhattan, which is driven by foreign demand.

At the end of the day, bubbles are psychological phenomenons, where investors and lenders both believe an asset is “special” and cannot go down in price. We will probably never see another real estate bubble, but our grandkids might. If anything, the bubble is in sovereign debt, and people will wonder why investors chose to tie up their money for 10 years for negative returns. Purchasing a German Bund yielding 13 basis points over 10 years is in the same category as buying a new construction McMansion in Stockton CA circa 2006 or paying $76 a share for E Toys the day of its $20 IPO in 1999.

Auto sales are coming in this morning, and it looks like they are coming in weaker than expected.

Interesting editorial by Clintonite Doug Schoen who says Hillary might not be the Democratic Party nominee. There is talk in the Democratic party about a white knight candidate, like Joe Biden or John Kerry who could enter the race at the convention, and select someone like Elizabeth Warren to be VP.

35 Responses

  1. Well, HRC might not be the nominee, but it will not be because Sanders wins CA or because the D Party currently wants someone else.

    She might die or stroke out and she might get caught lying to the FBI, leaving her VP nominee carrying the ball.

    The EW fervor in the D Party is probably confined to the lefties who populate the Plum Line audience, who are fewer than half of the party’s regular voters, but a large component, of course. And as with Trump and Rs, her ridiculously blatant self-aggrandizement at the expense of even her allies is forgiven by these people because “she’s a fighter.”

    Part of the D Party’s actual political problem is its failure to groom and push young candidates, in general. There are specific exceptions, but when its two combatants for the nomination are @70 and @75 and when he talks of JB in his 70s, Kerry [what is this guy drinking that he mentioned Kerry?] in his 70s, and EW in her 60s, and when their leaders in the Congress are over 70 it is a negative image compared to the rising leadership in the R Party. Do Pelosi and Reed have to die before someone in her 50s can even get heard?



    • Here is an almost-personal story about EW. A friend of mine is an AUSA [not in TX, but in a state in the northeast]. He was one of the USDA’s assistants tasked with a fraud case against a for profit college that was bilking veterans. After two years of discovery and pretrial, and right before trial, his team settled the case for more than $90M.

      EW, knowing full well that this was by far the biggest such settlement ever, and knowing that trial would have surely been postponed and recovery of anything threatened by a dive into bankruptcy by the “college”, took it upon herself to publicly criticize the settlement for letting the college get away with the fraud.

      She is a POS. So is DJT. And this is how I rate people, first, above whether or not I agree with their politics. George knows that I supported Jerry Patterson for AG in TX, ex-Marine, conservative R, social and fiscal conservative, but honest and with a history of accomplishment as Land Commissioner that was unrivaled. When the D running against him in 2010 for Land Commissioner obviously did not understand the office, to Patterson’s liking, he privately invited the D to travel around the state with him to see what the Land Commissioner actually does, just in the unlikely event the D would win. The D accepted. And when he got trounced, he wrote an op-ed in the San Antonio paper thanking Patterson and admitting that he only now understood what the job was really about.

      In the AG’s race, in 2014, all of the other candidates on the R side ran further and further to Patterson’s right [Patterson was already long on record as anti-abortion and pro-gun everywhere, so you can imagine how far right the others ran]. Patterson finished fourth, despite his truly great record as Land Commissioner, and the guy who is now our AG, whom I privately mentioned to George was a POS, is now under indictment for felony securities fraud, himself.

      And yes, I believe HRC invented the phony note receivable from Seth Ward to Madison S&L to prop up that bank during examination, and I knew folks who went to federal prison for doing the same thing in TX. So, yeah, I am not a happy camper, and I think Johnson – Weld is my vote.

      Liked by 1 person

    • Even if HRC lies to the FBI, obama’s DOJ is gonna let it slide. No way they treat this like a normal case.


  2. Second is the new Frist!

    I have ants appearing on my desk at work. A lot of them, but always onesies and twosies. Sometimes three. No lines, no direction. Scouts, I guess, but I can never tell where they are coming from. It’s like they are just appearing mysteriously from a wormhole or something. I’m a little flummoxed.

    I blame Climate Change.

    As far as HRC not being the nominee, I think it’s getting a little late for a White Knight candidate. Anything that’s going to unseat HRC and the presumptive nominee and replace her with a Biden or someone else is going to involve a fractious battle that will look a lot like a crack up, and hurt the Dems chances in November. The party folks who want, above all, to win the election will not want that to happen, or what they predicted for the Republicans will happen to them.


    • Put a bottle cap upside down half filled with sugar laced with ant spray on a far corner of your desk. Watch your own Bataan Death March. Or, if you prefer, put the bottle cap surreptitiously in an unused corner of someone else’s desk and make their day, thus luring the creatures away from you.


        • Mark:

          I linked to this case last month.

          As I said back then, the ruling is pure, unadulterated sophistry, and is “…a great example of how jurisprudence has ceased to be any attempt to understand the meaning of a law and faithfully applying it, and has become nothing more than an exercise in linguistic and conceptual gymnastics in order to justify making the law mean whatever the judge would like it to mean.”

          Liked by 1 person

        • “G.G. is a transgender boy now in his junior year at Gloucester High School. G.G.’s birth-assigned sex, or so-called “biological sex,” is female, but G.G.’s gender identity is male. G.G. has been diagnosed with gender dysphoria, a medical condition characterized by clinically significant distress caused by an incongruence between a person’s gender identity and the person’s birth-assigned sex.”

          That people use terms such as “cisgender” and “birth-assigned sex” seriously just amaze me. It truly is torturing the language so that words mean whatever you want. So-called “biological sex”? Seriously? That’s like calling a glass of water a “so-called” glass of water. However you want to regard gender identity and elevate it above other concerns, your biological sex refers to genitalia and ovaries or testes and secondary sexual characteristics, physically manifest, clear for almost everyone except in case of legitimate medical disorder. There are two biological sexes, and we have one or the other of them. It isn’t assigned at birth, it is accurately identified. A sense of gender dysphoria is another issue, and how that is regarded—as a psychological problems or a virtue to be elevated—is another argument. But if you’re born with a penis and a set of testicles, you’re a male. If you’re born with ovaries and vagina, you are a female. That’s not assigned to you by an oppressive patriarchy, it’s just what you are.

          That being said, I would have no trouble with G.G. using the same bathroom I do. Doesn’t matter to me. Don’t really see why it matters to many people, outside of perhaps shared open showers, which should be done away with, anyway, in my opinion. They aren’t, generally, any more fun for same-sex co-showerers. G.G. wants to say he’s a dude because he doesn’t agree with his genitals, I’m find with that, too. If he want to imply that he has no biological sex, and that he should have been “assigned” a gender of female or none, we’ll let the non-gendered human figure it out when they are older . . . that just seems nuts. But that’s were we are, I guess.


        • KW:

          That people use terms such as “cisgender” and “birth-assigned sex” seriously just amaze me.

          It isn’t just “people”. It is a freaking circuit court judge writing in an official legal opinion. We live in a twilight zone.


        • The goal is for trannysim to be considered a perfectly normal state, not a disorder.

          Liked by 1 person

        • @scottc1: “It isn’t just “people”. It is a freaking circuit court judge writing in an official legal opinion. We live in a twilight zone.”

          Point taken. Indeed. Every time I hear such, I cringe. Worse that it’s a circuit court judge, though,of course.


        • “The goal is for trannysim to be considered a perfectly normal state, not a disorder.”

          And for gender to become fluid, and a preference, and to be completely uncoupled from biological reality. The goal, I guess, is to make biological sex irrelevant or invisible, something of no more relevance to your gender than hair color or a mole above your elbow. I think the idea is to erase any notion of biological sex because, you know, equality or something.


        • No matter what, I’m gonna still want to bang chicks.


        • McWing:

          No matter what, I’m gonna still want to bang chicks.

          Even if, as Obama would have it, “chicks” gets officially redefined to include guys who wear dresses?


        • Like a Thai Ladyboy?


          Liked by 1 person

        • “No matter what, I’m gonna still want to bang chicks.”

          Eh, you’ll just have to just look for “cisgendered and proud” groups or Biological Sex Dating sites. Most of it is to universalize into culture that which will remain, in reality, highly marginal. Of course, the gender fluid are already way over saturated in entertainment and over exposed in the culture. Yet this will ultimately never change their severe minority status. But what’s it matter if you get the power?

          The net result in reality of all this? There will be more dudes (that is, those assigned the gender “male” at birth by the patriarchal establishment) claiming to have gender fluidity and that they feel like lesbian women trapped in men’s bodies or are a full blown woman trapped in a mans body who has never been attracted to women, but somehow this one cisgendered woman is somehow different . . . it’ll be another strategy to add to male plumage in the attempt to attract mates and appear unique. I’m amazed how the claim to bisexuality has become an effort to be “more interesting to chicks” amongst millennial men, and in no way a stigma to other dudes, who apparently at some level intuit that it’s all about getting into women’s pants. Being bisexual when I was a young man would not have been attractive, except to lonely homosexuals. Now it apparently makes guys appear mysterious and more sexually layered.

          Ugh. I hate progress. So-called.


        • There are two biological sexes, and we have one or the other of them. It isn’t assigned at birth, it is accurately identified.

          Actually, you can also be born with both or no external genitalia. That isn’t pertinent to the overall argument, though.

          Liked by 1 person

  3. @Michigoose: “Actually, you can also be born with both or no external genitalia. That isn’t pertinent to the overall argument, though.”

    Of course, but this is vanishingly rare, and, again, such conditions are identified, not “assigned” at birth. As I’ve noted, I’m not bothered by the concept of gender fluidity. I’m more bothered by language fluidity, and the changing the meaning of words to mean whatever you want them to mean whenever you want them to for whatever reason. But then, I self-identify as a pedant.

    Liked by 1 person

    • KW:

      But then, I self-identify as a pedant.

      I don’t think it is pedantic to object to the corruption of language. I am firmly with Orwell on this one.

      I have not here been considering the literary use of language, but merely language as an instrument for expressing and not for concealing or preventing thought. Stuart Chase and others have come near to claiming that all abstract words are meaningless, and have used this as a pretext for advocating a kind of political quietism. Since you don’t know what Fascism is, how can you struggle against Fascism? One need not swallow such absurdities as this, but one ought to recognise that the present political chaos is connected with the decay of language, and that one can probably bring about some improvement by starting at the verbal end. If you simplify your English, you are freed from the worst follies of orthodoxy. You cannot speak any of the necessary dialects, and when you make a stupid remark its stupidity will be obvious, even to yourself. Political language — and with variations this is true of all political parties, from Conservatives to Anarchists — is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind. One cannot change this all in a moment, but one can at least change one’s own habits, and from time to time one can even, if one jeers loudly enough, send some worn-out and useless phrase — some jackboot, Achilles’ heel, hotbed, melting pot, acid test, veritable inferno, or other lump of verbal refuse — into the dustbin where it belongs.

      Liked by 1 person

    • I’ve objected to the use of cis-gender in the past. And if you want to be really pedantic, yes, it must be italicized.


  4. It must be? I’ve seen “cisgender” used.

    “Lili Elbe was a transgender pioneer, and I’ll be curious to see if this film faces any of the same blowback that “About Ray” has been facing because they cast cisgender actor Elle Fanning to play a character who is beginning the transition from male to female.”

    It’s so hard to know!


  5. You blinded me with science!

    Liked by 1 person

  6. Good Kevin Williamson article on Trump and Russia:

    The Trump administration’s ties to Moscow probably should be investigated, if only for the sake of putting aside the wilder fears and more inflamed passions of less responsible partisans. The trouble is, the Obama administration and its Democratic allies in Congress have left us with no credible institution to undertake such an investigation. Whom would you trust? The Justice Department? The State Department? The FBI? The intelligence community? A special investigator? A bipartisan special committee that would be subject to the high ethical standards of Nancy Pelosi and Chuck Schumer?


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